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Quiz 6, 11/7/12

Quiz 6, 11/7/12. Answer on the back of the second evaluation form or a plain sheet if you were in that presenting group. Four easy questions…. 1. Which of the following is not a quote from “Corporate Budgeting is Broken…”?

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Quiz 6, 11/7/12

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  1. Quiz 6, 11/7/12 Answer on the back of the second evaluation form or a plain sheet if you were in that presenting group. Four easy questions…

  2. 1. Which of the following is not a quote from “Corporate Budgeting is Broken…”? • [T]he budget process itself isn't the root cause of the counterproductive actions; rather, it's the use of budget targets to determine compensation. • The kinks in the pay-for-performance line-caused by the minimum hurdle bonus and the maximum cap-create strong incentives to game the system. • Curvilinear compensation plans are just as good, and often better, than linear plans. [He makes exactly the opposite point.] • Setting extremely aggressive stretch goals, as is so common in business today, can itself have damaging repercussions. • All of these are quotes from the article.

  3. 2. Which of the following is not discussed in the “Transfer Pricing” reading assigned for today, from the Garrison et al. book? • Negotiated transfer pricing. • Cost-based transfer pricing. • Market-price-based transfer pricing. • International aspects of transfer pricing. • None of the above (all are discussed).

  4. 3. Answer for a presentation today other than your own (indicating A or B): • Will Wu & Zachary McCallum: Is Performance-Contingent Incentive Pay the Best Way to Motivate Managers? • Laurie Whiteside, Ling Zhang, & Nicole Wheetley: Budgeting for International Operations Write two or three sentences summarizing what you consider the most important factual information that you learned from the presentation.

  5. 4. Who was re-elected President of the United States yesterday? • Barack Obama. Hint: • Mitt Romney. • Calvin Coolidge. • Ralph Nader.

  6. Thoughts on Budgeting ACCT7320 Fall 2012 Bailey

  7. Purposes of Budgeting • Stimulate concern for the future • Provide a framework for delegation of authority & responsibility • A financial model to test plans against • A communication device - to relay top management’s style & authority - establish organizational climate - the dialogue is what’s important • Motivation?

  8. Purposes of Budgeting • These purposes may conflict. E.g., the best motivator may not be the best expected performance for planning cash flow, etc. • Target shown on budget ? Expected attained performance • So, should there be separate budgets for motivation vs. planning? Or a range of budgets with different levels of probability?

  9. Attitudes • Attitudes toward budgets tend to be negative. • Chris Argyris, The Impact of Budgets on People, 1952 • Neg. attitudes towards accountants and budgets • Recommended participation in the budgeting process as a cure; generally supported by later research

  10. Research on “Participation” • Participation represents a spectrum • Studies show greater likelihood that managers will carry out their “own” plans, than imposed plans.

  11. Participation • But care is needed in generalizing from the research studies • E.g., Some studies involved a change from authoritarianism to some participation - May not generalize to a change from some to much participation • Current research approach is to consider the underlying processes & conditions

  12. Effects are more complicated Participation Improved group cohesiveness Prevailing Group Attitudes Worse productivity? Better productivity?

  13. Effectiveness • Additionally, the effectiveness of participation may depend upon: • Nationality • Ethnical attitudes • Personality types of workers, supervisors • Access to information (centralized, dispersed) • Type of decision (e.g., close down plant)

  14. Forecasting of Revenues, Costs • Sales • The key figure! • Determines: production level plant needs (expand?) selling & admin expense

  15. Methods of sales forecasting • Judgmental estimates by key executives, sales force • Trend analysis a) “we've been growing 10% per year” b) Mathematical time series Sales example, Dept. store: Qtr • Sales = f(St-1,St-4) Details are complicated

  16. Methods • Correlation (regression) analysis (Not in time series. Just a correlation.) #Refrig. Sold = y x = # Housing starts in previous year y = a + bx . . . . . . . . . . . . . . . . . . . . . . .

  17. Methods • Multiple regression • y = a + b1x1 + b2x2 + b3x3 etc. • E.g., y = tire sales by Uniroyal x1 = new cars to be manufactured x2 = new cars made 3 years ago x3 = GNP (or DPI)

  18. Methods • Market share analysis (co's % of mkt) x (total industry forecast) • E.g.: pharmaceutical firm has 20% of market; • all legitimate drug sales = 1% of DPI • 20% x 1% x DPI forecast = our sales forecast

  19. Budgeting, continued… • Discuss “Corporate Budgeting Is Broken”

  20. Kinksp. 97

  21. Linear!P.98

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